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Dodd calls for Lehman Bros. investigation

By Annalyn Censky, staff reporterMarch 20, 2010: 9:51 AM ET

NEW YORK (CNNMoney.com) -- A year and a half after Lehman Brothers' collapse, Senate Banking Committee Chairman Chris Dodd, D-Conn., is calling for a federal investigation into the "Lehman situation" and other companies that may have fudged their balance sheets, contributing to the financial crisis.

"We must work tirelessly to reduce the incidence of financial fraud in order to restore trust and confidence in the financial markets," Dodd wrote in a letter sent to Attorney General Eric Holder on Friday.

In response, the Justice Department said is reviewing the letter, according to Tracy Schmaler, a spokesperson from the agency.

The letter comes a week after a court-appointed bankruptcy examiner released a 2,200-page report about the demise of Lehman Brothers. The firm's bankruptcy filing on Sept. 15, 2008, was the largest Chapter 11 filing in U.S. history.

The report criticizes Lehman's use of an accounting trick called "Repo 105" to make its books look better.

Dodd released a draft bill on Monday aimed at preventing future Wall Street bailouts. The rule would create a new consumer regulator housed inside the Federal Reserve to ensure consumers get a fair shake with mortgages and credit cards. It would also trim the ranks of federal banking regulators and clarify the duties of remaining agencies.

In a speech on Monday, Sen. Ted Kaufman, D-Del., also called on President Obama to initiate a criminal and civil investigation of Lehman Brothers.

"It is high time that we return the rule of law to Wall Street, which has been seriously eroded by the deregulatory mind set that captured our regulatory agencies over the past 30 years," he said.

Kaufman called for an investigation not only of Lehman executives and its board of directors, but also its accounting firm Ernst & Young and foreign banks involved in the "Repo 105" transactions.

Dodd is retiring at the end of his current term after 30 years in the Senate. Kaufman, who replaced Joe Biden when Biden assumed the vice presidency, will not seek election; his successor will be decided in a special election this year.